* Refiners post loss in main downstream refining business
* Refiners see margins rising for 1st time in four years
* Refiners see swing to profit in the year to March
By Osamu Tsukimori
TOKYO, May 9 Japanese oil refiners are
projecting increases in petroleum refining margins this year for
the first time in four years, as the shutdown of four crude
distillation units (CDUs) in March helps reduce excess capacity.
The rebound may be short-lived unless Japan pushes through
further capacity cutbacks in a second round of reforms planned
for 2017, as a falling population is expected to cut annual
demand for gasoline and other products by nearly 2 percent.
Japan's biggest refiner, JX Holdings Inc, posted on
Friday a recurring loss of 77.5 billion yen ($763 million) in
its petroleum products business for the year through March, as a
decline in the yen pushed up the cost of imported crude. It was
the first loss in the segment since JX was formed in 2010.
"With a flexible approach that maximizes utilization rates,
expands exports and petrochemicals output, while sometimes
buying products from the market, industry should be able to
rebuild margins," JX Senior Vice President Akira Omachi told an
The loss in JX's products business helped push net profit
down by a third, to 107.04 billion yen.
JX expects refining margins, equivalent to spot domestic
prices minus crude import costs including freight and insurance,
to recover by about half to around 9 yen per litre (34 U.S.
cents per gallon).
A weakening of 17 percent in the yen against the dollar in
the business year that ended in March drove up crude import
costs, despite the slight decrease in oil prices, squeezing
Idemitsu Kosan, Japan's second-biggest refiner by
revenue, also reported an operating loss of 22.1 billion yen in
refining business, excluding the impact of inventory gains.
"For the previous three years, oil spearheaded overall
profits, so it was the harshest oil earnings in four years,"
Idemitsu Director Shunichi Kito told reporters at an earnings
briefing on May 2.
"We expect refining business to return to profit of 44
billion yen in the current business year, and most of that is
due to a recovery in margins we have taken into account."
Concerns about supply shortages may help raise margins
further as more than 30 percent of Japan's 3.95 million barrels
per day (bpd) refining capacity is shut in early June for
maintenance, forcing refiners to turn to overseas markets.
Japan's demand for oil products began falling in 2006 as
consumers and businesses shifted to smaller-engined cars and
more energy-efficient equipment amid high oil prices and
Japan cut crude refining capacity by 19.2 percent to 3.95
million barrels per day (bpd) on April 1 from 4.89 million bpd
in 2008 after the government in 2010 pushed through mandatory
measures to boost refinery efficiency forced refiners to cut
capacity in line with shrinking demand at home.
The government in February began reviewing options for a new
round of reforms to boost efficiency.
Despite some opposition from refiners, industry officials
say they agree that further capacity cuts are inevitable as
surplus capacity saps domestic oil margins.
The next round of reforms may reduce the nation's refining
capacity by 10 percent to around 3.6 million bpd, Fuji Oil
President Fumio Sekiya said on Thursday at an earnings
Sekiya said he would consider joint operations of Fuji's
sole refinery in Chiba, east of Tokyo, with nearby rival
refineries, which include those operated by Idemitsu and Kyokuto
Petroleum Industries (KPI), to cut costs and boost efficiency.
"If there's more merit in operating our refining units
jointly with units owned by another company, then we would be
happy to discuss it," he told Reuters after the earnings
briefing. He declined to identify candidates.
The government projects demand for oil in the world's
fourth-biggest oil user - excluding fuel oil used for power
generation - to fall 1.7 percent per year on average through
($1=101.6050 Japanese yen)
(Reporting by Osamu Tsukimori; Editing by Aaron Sheldrick and